Economics and ideology

Mainstream (neoclassical) economics has always put a strong emphasis on the positivist conception of the discipline, characterizing economists and their views as objective, unbiased, and non-ideological …

Acknowledging that ideology resides quite comfortably in our economics departments would have huge intellectual implications, both theoretical and practical. In spite (or because?) of that, the matter has never been directly subjected to empirical scrutiny.

In a recent study, we do just that. Using a well-known experimental “deception” technique embedded in an online survey that involves just over 2400 economists from 19 countries, we fictitiously attribute the source of 15 quotations to famous economists of different leanings. In other words, all participants received identical statements to agree or disagree with, but source attribution was randomly changed without the participants’ knowledge. The experiment provides clear evidence that ideological bias strongly influences the ideas and judgements of economists. More specifically, we find that changing source attributions from mainstream to less-/non-mainstream figures significantly reduces the respondents’ reported agreement with statements. Interestingly, this contradicts the image economists have of themselves, with 82% of participants reporting that in evaluating a statement one should only pay attention to its content and not to the views of its author …

Economics education, through which economic discourses are disseminated to students and future economists, is one of these important channels. It affects the way students process information, identify problems, and approach these problems in their research. Not surprisingly, this training may also affect the policies they favor and the ideologies they adhere to. In fact, there already exists strong evidence that, compared to various other disciplines, students in economics stand out in terms of views associated with greed, corruption, selfishness, and willingness to free-ride …

We find evidence of a strong ideological bias among economists … For example, when a statement criticizing “symbolic pseudo-mathematical methods of formalizing a system of economic analysis” is attributed to its real source, John Maynard Keynes, instead of its fictitious source, Kenneth Arrow, the agreement level among economists drops by 11.6%. Similarly, when a statement criticizing intellectual monopoly (i.e. patent, copyright) is attributed to Richard Wolff, the American Marxian economist at the University of Massachusetts, Amherst, instead of its real source, David Levine, professor of economics at the Washington University in St. Louis, the agreement level drops by 6.6%.

Mainstream economists — in many ways separated from the ​life of ordinary people — are with their ‘the model is the message’ thinking particularly inclined to confuse the things of logic with the logic of things. They have a tendency to get enthralled by their theories and models​ and forget that behind the figures and abstractions there is a real world with real people. Real people that have to pay dearly for fundamentally flawed ideological doctrines and recommendations.

5 Comments

“In fact, there already exists strong evidence that, compared to various other disciplines, students in economics stand out in terms of views associated with greed, corruption, selfishness, and willingness to free-ride …”

We’ve talked here about some of the historical reasons why economics views people as basically selfish, and I have argued that this goes back to its Victorian roots.

But I think there is also a strong culture within economics faculties where another explanation can be found. And that is its links with the financial sector. On the one hand economics degrees attracts people who wish to work in the financial sector. And why do people want to work there? Easy: money. A career in the financial sector is potentially financially very rewarding.

The financial sector also rewards people with strong quant skills. Want to work as an economist at Goldman Sachs? You will be working on constructing econometric models. Whether these models mean anything is besides the point. Like the derivatives models that were supposed to be infallible before the 2008 crash, most people probably know that these things are nonsense. But that is not going to change things. And for macro-economics graduates particularly, getting into these institutions via a central bank or treasury has a high chance of paying off.

Economists are not anthropologists. They are not really interested in how societies actually work, which would get us far closer to really understanding capitalism. Most people enter the profession for pure self-interested, pragmatic reasons. Perhaps one of the few things economic theory can explain is the market for economics graduates!

“You will be working on constructing econometric models. Whether these models mean anything is besides the point. Like the derivatives models that were supposed to be infallible before the 2008 crash, most people probably know that these things are nonsense.”
.
Some traders post screenshots of often-confidential Goldman Sachs, JP Morgan, etc. reports; they are not concerned with the type of models economists talk about, except very superficially. The bank reports talk of yields and spreads and carry trades and basis points, stuff that you rarely see economists talk about. The preoccupation with predicting future Fed rate-setting shows just how arbitrary they know pricing to be. I get less negative feedback from traders when I say prices are arbitrary than from economists, because traders daily see arbitrary price movements …
.
The derivative models before the 2008 crash had an immature insurance piece. We could easily fix that by having the Fed sell panic insurance. That we don’t do that is testimony to how much humans are addicted to emotional panics. We know how to eliminate them but we don’t because we enjoy the emotional roller-coaster too much.

My personal opinion is that if you are an undergraduate …. will be much better off taking one or two additional math and statistics courses rather than spending time and credits writing an undergraduate honors thesis. This will also look better on your transcript if you plan to apply to graduate school.

You can see from above how it all works. This is not the way you create questioning minds and find solutions to the problems that face capitalism. It is the way to get a job at an FI.

That’s maybe better than ~25 years ago when Capitol One (I think) cold called me to offer me a job as a quant. At the time, I was a Research Scientist in Materials Science at a small Midwestern engineering school

Yeah but read Durman:
.
“it’s been impossible for me to overlook the difference a simple and well-designed piece of software can make to a business, no matter how good or bad the model underneath.”
.https://thefinancialengineer.org/2013/02/11/emanuel-derman/
.
GS produces research documents that pay lip service to theory but quickly switch to finance terms that relax the constraints in economic models.

Comments Policy

I like comments. Follow netiquette. Comments — especially anonymous ones — with pseudo argumentations, abusive language or irrelevant links will not be posted. And please remember — being a full-time professor leaves only limited time to respond to comments.